The heads of nearly 200 U.S. companies said Monday they are committing to a move away from the idea that the main purpose of a company is to maximize shareholder value, marking a break with a long-held conviction.
The Business Roundtable, a group of chief executives that was formed to promote pro-business interests, said it is shifting its statement of the purpose of a corporation to include all of its stakeholders, including employees, suppliers and broader society.
The group, which is currently led by JPMorgan JPM, +1.10% Chief Executive Jamie Dimon, previously promoted the idea made famous by economist Milton Friedman that companies’ primary purpose is to reward shareholders.
“While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all our stakeholders,” the CEOs wrote in a joint statement.
The group is now committing to delivering value to customers, investing in employees in ways that go beyond financial compensation to include training and education to ensure their skills are kept up to date, and embracing “diversity and inclusion, dignity and respect.”
The group is also committing to dealing fairly and ethically with its supply chain, supporting the communities in which they operate and generating long-term value for shareholders, who provide the capital companies need to invest and grow.
“Each of our stakeholders is essential,” said the statement. “We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”
The announcement comes at a time when business leaders and others have started questioning the role the companies they run play in the broader economy. JPMorgan’s Dimon, for example, has long argued for an end to the divisive politics that are failing to address a range of issues from income inequality to racial and gender issues, stagnant wages, lack of equal opportunity, immigration and health care.
Read: Amazon–Berkshire–JP Morgan health initiative makes an out-of-the-box choice for CEO
Dimon’s annual shareholder letter is a wide-ranging exploration of those issues, and he and billionaire investor Warren Buffett have questioned the short-termism that pervades U.S. corporate life with its emphasis on quarterly earnings beats and misses. Dimon has further criticized the excessive use of share buybacks, which are often conducted at the cost of growth initiatives.
In his 2019 letter, published in April, Dimon said share repurchases should only be considered when a clear use for excess capital over the short term isn’t visible, and only if they are repurchased at a “reasonable” price.
See: Ignore Trump and Musk — here’s how to find companies whose CEOs think long term
“We much prefer to use our capital to grow than to buy back stock,” Dimon said. “Investing for the future should come first, and at JPMorgan Chase it does,” Dimon said.
Equally, while transparency with shareholders is a good thing, earnings guidance can be “damaging,” given the “cumulative corrosiveness” of trying to “make” its numbers. He said it was easy to boost earnings results in a quarter by doing “stupid things” that help in the short term but are bad in the long term.
“And this could spiral within a company, as loyal, well-meaning employees do what they can to help a company meets its ‘earnings goal.’ ”
Dimon is not alone in lobbying for changes to how companies do business. Ray Dalio, founder of Bridgewater Associates LP, the world’s biggest hedge fund, said recently that capitalism has developed into a system that is promoting an ever-wider wealth gap that puts the very existence of the U.S. at risk.
See: SEC’s Clayton redefines ‘short-termism’ concerns to focus on deregulatory agenda
In a two-part series published on LinkedIn, the noted investor argued that capitalism is now in need of reform — and offered ways to accomplish it.
To be sure, not every member of the Business Roundtable signed the letter. The signatories can be viewed here.
The companies and leaders who chose not to sign include Wells Fargo & Co. WFC, +2.28% whose current interim CEO is C. Allen Parker, Kaiser Permanente led by Bernard J. Tyson, Blackstone Group Inc. BX, +1.74% led by Stephen A. Schwarzman, General Electric Co. GE, -1.54% led by Larry Culp, Conduent Inc. CNDT, +5.70% led by Ashok Vemuri, who is stepping down following a spat with activist investor Carl Icahn, Grant Thornton, currently headed by Mike McGuire as CEO emeritus, Parker Hannifin Corp. PH, +1.97% led by Thomas L. Williams, State Farm led by Michael l. Tipsord and Alcoa Corp. AA, +3.42% led by Roy Harvey.
For more on this topic: Hedge-fund billionaire Ray Dalio says capitalism needs urgent reform